Term Paper, 2014
19 Pages, Grade: 10,0
1.1 Research Problem
1.1.1 Problem statement & limitation
1.1.2 Research question
1.2 Structure of the report and methodology
2. Main Part
2.1 Cost of Money
2.1.1 Society and the individual
2.2 Global initiatives
2.2.7 South Africa
2.3 Different trends
2.3.1 Digital Currency
2.3.2 Electronic Wallet
2.3.3 Trading using informational technology
2.4 Advantages and Disadvantages of becoming a cashless society
2.5 Influences on Business
2.5.1 Influence on technology and software engineering
The history of the evolution of money also shows how the human beings developed itself on a mental way. Starting with a so called "Barter economy" where for example animals like cows and sheep where used as kind of "currency" or rather "exchange product", years later going over to using shells as currency and finally ended up with money as we know it today, as paper- and metal-money (NOVA 1996).
As mentioned, bartering where a common way of "paying", which basically means, that to receive some goods, you had to give some other goods. To avoid disagreements of the value of different goods, commodity money was invented. Commodity money were daily goods, like salt. That some commodity goods brought problems like the size or defensibility, was found out later. The Lydian's were the first folk, who invented coins. Decades later the Chinese were the first ones, who invented paper money. This invention of coins, named commodity money, quick became a worldwide used item. From now on, a "customers" needs could easier be fulfilled, since there was something that had a certain value (Mary Bellins, n.d.).
By inventing the first representative money, the society especially in Europe where allowed to enter a totally new era. Banks created the first so-called currency market, international trade activities where possible and the value of a countries currency depended on its political behavior (NOVA 1996). During the 17th century, commodity money slowly got replaced by representative money, since global bank and trade networks were steadily increased. Representative money is in form of paper bills or guarantees of the bank. Later the value of money for the first time was tied up to gold, the gold standard (NOVA 1996). Since the economy kept on growing, representative money got replaced by fiat money. Enforceable legal tender laws have been made, which basically means that the money's value is given by the governments decree and fiat (Mary Bellins n.d.). Free capital was invented. The growth of economic sectors was significantly fostered by this invention, but also the chance to make debts.
Fiat money today is just accepted by the society because people know that central banks have to control the money which is in circulation - monetary policy. As can be seen, the trust of the consumers is very important (Federal Reserve Bank of Minneapolis, 2012).
Moreover, human beings almost always had something "to hand" which made it possible for them to purchase goods and services. Based on this historical background, this analysis and description is made.
The purpose of this report is to give the reader an understanding of a world without cash money on a physical basis as he might know it. The reader will be confronted with topics like how countries around the world have implemented different trends of cashless initiatives, as well as what trends and initiatives already exist. Analyzing and discussing the advantages and disadvantages, such as effects on industrial areas is part of it too. Finally the reader will be able to understand and predict if a world without cash is the next evolutionary step in our society and in businesses.
The central research question of this paper looks as follows: Will the advantages of a cashless societ outweigh the disadvantages and in what way will it influence the society and business? For a better understanding, global initiatives are presented as well as how this movement towards getting cashless can be used more advantageously in different sectors.
This paper describes, analyses and evaluates the present and future trends and actions around the globe becoming a society without the existence of cash money. Starting with explaining what is the cost of money, it continues with presenting global initiatives from countries who are trail blazers in becoming a non-cash society. It further explains and presents the cause of this global movement, which is influenced by three main factors: Behavior of the society, the development on technological areas, such as governmental strategies and policies.
After having a closer look on the different trends of e-payment systems, it continuous with the advantages and disadvantages. Furthermore the influence in two sectors, business and technology, is presented and compared. Finally, all findings are summarized and comparable discussed in the conclusion.
All literature has carefully been assessed for applicability to the topic. For professional and expert opinions as well as evidence on developments and trends, Google Scholar was huge help. To support the found facts and trends secondary literature and other internet resources were used. All sources been used are combined at the report's conclusion.
Definition: "The interest that could be earned if the amount invested in a business or security was instead invested in government bonds or in time deposits." (BusinessDictionary, n.d.)
There are two groups which have to be considered here, since the "cost of money" do not have the same implications and meanings to them. On one side there are the banks, businesses and the government. On the other side is the consumer, who is seen as an individual.
The economy performs only with money in the system. This money is used to create wealth, or in other words, this money is there to be used. So the cost of money creates the expense which arise from supporting it. This means that there are developed costs to the economy, when there is cash money stored in a piggybank in private households (Adam Smith, 1776). A study of the Tufts University in Massachusetts, United States of America, can be used as an example. This study states that the US economy loses around 200 Billion dollars each year, by the use of cash money in private households (Diane Bradey, 2013).
The costs can arise out of different reasons. As mentioned in the text above, money that is used, can neither "create wealth" nor earn interest - money which is always available to the consumer, checking bank account, cannot earn interest.
Bank and transaction fees such as a time-factor, both create another key cost for an individual in this system. By time-factor is meant the lost time that is needed to be paid. Not to forget are costs that arise from the black market and drug trade for the society, such as the printing costs which governments and central banks have to pay. As mentioned in the study example above, a government yearly has a huge loss when summing all these costs together.
Of course companies or businesses do face the same cost of money as the individuals in the society do. But these costs cannot be compared, since the costs for business or companies, are much higher.
Companies do have similar painful costs as the individual does. Costs like banking fees and no-interest-payments of money which is stored in cash.
Internal and external costs that arise through criminal actions, both physical theft and electronic theft, though are still the costs that are most painful for companies and business. This can have influence on the end consumer as well (Chad Brooks, 2013).
It is not difficult to estimate that the cost of money can have many faces. In the following it will be analyzed if a world without cash money will help to minimize these costs for the individual such as for the business. In addition to that, it will be concluded if the benefits will even out possible cost of a world without cash.
The possibilities of electronic payment, is very manifold. Not only industrialized countries like Australia, Canada, France, Sweden and of course the United States of America, but also African countries like Kenya, Nigeria and South Africa are more and more implementing electronic money and payment systems in the daily use (IT&TelecomDigest, 2013). This action is driven by the benefits that comes with it and did even come through a societies behavior, or through technology and governmental policies.
In 2011 ePAL - Payment Australia Limited, Australia's most popular payment system, made a research regarding becoming a cashless country. The research stated that more than 31 percent of the Australians have less than $20 with them. It also stated that this percentage number is decreasing (Eftpos, 2011).
According to ePAL's managing Director Bruce Manfield said, citation:"All the indicators that have been revealed during the research, point to Australians moving away from cash and favoring electronic payments." (Bruce Manifield, 2011)
Canada is the leading country when it comes to plastic payments, credit debit and bank cards (RBS report 2011, HuffPost Business Canada, 2012). This report states as well that the average usage of plastic payment in Canada is 28% higher compared to the rest of the world. In 2012 71% of the Canadians stated that they prefer electronic payment over for cash. Like in Australia, most Canadians have a small amount of money with them - less than $50. Having countries like Australia and Finland as role models, Canada is getting rid of their copper penny's as well, since central banks and the economy realized the "cost of money". After eliminating the penny, the Royal Canadian Mint started a project similar to BitCoin called MintChip, which is a digital coin. MintChip can be used by consumers for transaction with a low amount of money - under $10. Since this is invented by a national Mint, it is given that this project is much more serious and is part of the way towards a society were physical money is not that important anymore.
End of 2012 Canada stopped printing bills, since the demand for it was steady decreasing and the "new bills" out of plastic are set to be better quality (CanadianAwarenessNetwork, 2012). In 2011 and 2012, Canada introduced the new $100, $50 and $20 bills made out of plastic. Their life expectancy is higher such as their security issues are better.
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